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Co-Operative Federalism Is the Way Forward Yashwant Sinha MP

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Co-Operative Federalism Is the Way Forward Yashwant Sinha MP Co-Operative Federalism is the Way Forward Yashwant Sinha MP & Chairman, Parliamentary Standing Committee on Finance Let me begin by saying that we often make or create confusion between what is federalism and what is decentralisation and I have seen quite a number of studies where the two terms have been used interchangeably. To me it appears that federalism has to be defined separately from decentralisation. Federalism is the coming together of equal partners who come with a common goal and share powers and jurisdictions. In the case of decentralisation, it is one superior entity which is partly decentralising its powers to the units below and there is a spirit of condescension, in this you know, I will give only this much and not more. And Shri N.K. Singh in particular will remember representing Bihar as he does in the Rajya Sabha on the question of special category states. It’s up to the Government of India to give it or not to give it. So it is not an equal partnership and therefore this unequal balance very well describes the scene as it obtains. Now the second point is that our Constitution, our polity, is markedly and decidedly non- federal. The first Article of the Constitution talks about India that is Bharat being a Union of States. It is not a federation of states. It is described as the Union of states and there are a number of articles in the Constitution which emphasise the overwhelming character, the unitary character of our polity. Article 3 gives the power to the Parliament of India to create a new state, to bifurcate states, to change the boundary of states, to change the name of a state. Now can you do it in a federation of states? This is a power which gives pre-eminence to the Centre, to the Union, through its Parliament. Then there are other articles of the Constitution which are clearly unitary in nature: Article 248 with regard to residuary powers of legislation; Article 249, power of Parliament to legislate with respect to a matter in the state list in national interest; Article 257(2), giving directions to a state; Article 271, surcharge on certain duties and taxes not to be shared with the states. And two former revenue secretaries here will agree with me that this is a typical tactic which is adopted by the Government of India when you don’t want to share something with the states, so you don’t impose a new tax, you impose a surcharge because that money is wholly yours. Then Article 280, Finance Commission, I am referring to it because Finance Commission is appointed by the Government of India. It consults the states, but the states have no role in the appointment of the Chairman of the Finance Commission and the members of the Finance Commission. And finally, Article 356 which as we all know relates to President’s rule. Now when the Constitution was framed and given to the people of this country in 1950, all this was very well, because we had challenges and those challenges had to be met and therefore we created a Union of States and not a Federation of States because India had to remain united. Over a period of time, as these threats and dangers have receded and as NK said regional parties have emerged, states have decided to assert 1 themselves. The same Constitution is today being interpreted by the states in a different light and thus there is a pressure on the central government. This makes the central government cede more and more powers and jurisdiction to the state government, and therefore we are, despite provisions of the Constitution, progressing towards federalism where the states are demanding to become equal partners with a union government. I referred to the Finance Commission. Take the case of the Planning Commission. The Planning Commission as we all know is not a constitutional body. It has been created by an executive order of the union government and it has continued all these years through decades without any statutory or constitutional position and we are all aware of the very important role that the Planning Commission plays in the devolution of funds from the centre to the states. Now I’ll have a little more to say on this later but as far as devolution is concerned, I am not talking of other informal arrangements which the finance ministry may make from time to time to help a state. Under our system, the devolution of funds to the states takes place through the Finance Commission award and through the Planning Commission allocations. And again as NK said there is the National Development Council which is a body of the Planning Commission presided over by the Prime Minister who is the Chair of the Planning Commission and presides over the meetings of the National Development Council. It remains a matter of opinion about the kind of role that the NDC plays or can play. But in the Constitution there is a very important body called the Interstate Council. The Interstate Council is truly a constitutional body where the centre and the states are supposed to come together and discuss issues of mutual interest and then take a decision based on consensus between the centre and states and its not merely fiscal, it encompasses a whole range of issues and that’s the reason why perhaps it has been located in the Ministry of Home Affairs and not with the Ministry of Finance. Now as I was telling you, long years of single party rule both at the centre level as well as the states level led to a situation where we had almost the dictatorship of the centre operating at the state level also. But things started changing from 1967 when the first non-Congress governments were elected in some of the states and they started asserting themselves and today the situation is dramatically changed. Now there are apart from devolution as I said, a number of issues, where the centre has to necessarily work with the state governments. We are all aware of the fact that the state governments’ accounts, except for Jammu & Kashmir, are maintained with the Reserve Bank of India. They are allowed certain overdraft facilities and it used to be a very live issue some years ago where the states were always hand to mouth and they would go to the Reserve Bank of India or come to the Ministry of Finance to enable them to draw more than what their limit of overdraft with the RBI was, but now the situation has changed. The fiscal deficit of the states today is much better than of the central government and this is thanks largely to the Fiscal Responsibility and Budget Management Act that was passed by Parliament when we were in government, implemented by this government, and then through the Finance Commission we persuaded the states to adopt similar legislations. I dare say that the states have done 2 much better in observing the tenets of this Act than the Government of India has done. We have thrown it out of the window, that’s another matter. But take for instance the case of Agriculture Produce Marketing Committees (APMCs), which is a very major issue in our agriculture because if something militates against making India a common market, it is the APMCs and you cannot abolish it because it is a state legislation, so you have to work with the states to moderate it or get it abolished. I remember we had started a number of discussions in the Interstate Council sub- committee with the state governments on the question of abolition of APMCs without much success. Here I will recall an incident where we were discussing the VAT with the state finance ministers and I think the finance secretary in that meeting of the Government of India dared to suggest that the states should abolish the tax on the trade of grains, food grains which will help reduce prices. The finance minister of Haryana lost his temper so badly that one thought that he might even assault the finance secretary of the Government of India. He had to be restrained and as you know, the finance secretary had only made a suggestion. There is another issue - Essential Commodities Act, which the states implement. Now you change section 7 of the Essential Commodities Act as we did but you have to carry conviction with the state governments because they are the ones who have to implement the provisions of this Act. I remember a series of discussions which I had with the state governments before we were able to amend section 7 of the Essential Commodities Act with regard to storage, hoarding, unfair trade practices etc. But the most important issue today of course between the centre and the states is the Goods and Services Tax. Earlier it was the Value Added Tax and I can tell you from personal experience that when I started the process of introduction of the Value Added Tax, we had already done it at the central level through CENVAT and this had to be now implemented at the state level and the states sales tax had to be replaced by VAT. We had long meetings with the state finance ministers, and again claim credit for the fact that I created a body at that point of time which has survived the test of time and has today become a very important organ of centre state co-operation and that is the Empowered Group of State Finance Ministers, not a constitutional body, but a body which is playing a very important role today.
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